US Inflation Down & UK Inflation Same Dampening Interest Rate Cut Hopes

Published / Last Updated on 14/02/2024

UK Consumer Prices Index (CPI) Inflation Holds at 4% pa.

The Office for National Statistics (ONS) has today released Consumer Prices Index (CPI) inflation figures for January 2024, and it has remained the same (so lower than forecast) at 4.0% pa following a 0.1% increase in December.  Recent inflation figures were 4.0% pa in December 2023, 3.9% pa in November but still way below October 2023 (4.6% pa) after the huge falls of 2.7% since September 2023 (6.7% pa).

It was widely forecast that UK CPI would hit 4.2% pa in January given sustained high costs for housing, clothing, recreation, alcohol, tobacco, and restaurants.  Transport costs were down, and food price increases slowed but at 7% pa, they are still extremely high.  Services overall contributed the most and our best guess is that it is price rises to prepare for National Living Wage and Minimum Wage increases in April.

RPI Falls Again

The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending (rather than the geometric mean for CPI) and still our preferred measure of real inflation, fell again from 5.2% pa to 4.9% pa.  RPI has fallen consistently over the last few months and is now 3.8% pa lower than it was 4 months ago, this is a dramatic shift in overall cost increases since September 2023.  That said, RPI is no longer an official government statistic but given State Pension increases and Index Linked Gilt yields (government debt repayments) are linked to RPI, this will be welcome news to the Treasury.

US Inflation Down But Higher Than Forecast

US CPI figures were released yesterday, with a fall in January from 3.4% pa to 3.1% pa.  2.9% pa was widely forecast, and this result certainly dampened expectations of the Federal Reserve cutting interests rates.  Both the Dow Jones and the S&P 500 fell on US inflation news yesterday, but the FTSE 100 is up over 0.5% this morning on better-than-expected UK inflation figures.


We may be getting closer to interest rate cuts, but we suggest the Bank of England may hold fire until October 2024, to drive inflation down even further given State Pensions and many other benefits increases for April 2025 are linked to September 2024 inflation figures.  The Bank of England will likely not cut interest rates early as they will not want to risk inflation climbing up again as it then becomes a ‘vicious circle’ in that the Bank of England would have to increase interest rates again to bring inflation down if it went up again because any increase in interest rates would, by default, push RPI up (as mortgage costs are within RPI) and then state benefits would increase at a faster rate in April 2025 than desired.

Do not be complacent with all the above though.  January is traditionally a harder month as many people have ‘spent out’ in December and curb spending in January, so it was natural that inflation fell or remained unchanged.  February may be a tougher month for UK inflation depending upon fuel costs and the impact of routing goods via the Cape (South Africa) rather than through the Red Sea and Suez with the next UK inflation report due on 20th March 2024.

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